Nebraska’s Expanded Medicaid Program Faces Shortfall

Nebraska’s Medicaid expansion is creating a budget crisis that will likely force cuts to other government programs.

Moody’s Investors Service released a report in November detailing the future fiscal situation for Nebraska after its Medicaid expansion goes into effect in 2019. Earlier in 2018, Nebraska voters approved the expansion, but the state has not yet announced how it will pay for its share of the costs.

Under Obamacare, states that expand Medicaid receive partial funding from the federal government. States are responsible for covering the remaining costs. Republican Gov. Pete Ricketts, who opposed the expansion, says the costs will have to be paid for using existing tax revenue, even it if means less money for K–12 schools, higher education, and roads.

Dueling Estimates

Nebraska’s Legislative Fiscal Office estimates the state’s initial share of the cost of Medicaid expansion will amount to $39 million per year, slightly less than 1 percent of the state’s general revenue fund. State Medicaid officials disagreed, estimating the cost will be $57 million per year, roughly 1.3 percent of annual revenues.

The federal government pays 93 percent of the expansion costs in 2019 and 90 percent in 2020 and thereafter. Moody’s reports Medicaid expansion will mean there will be less money available for other state spending priorities if funded with existing revenue.

Moving Money Around

Sarah Curry, policy director at the Platte Institute, says Medicaid expansion is going to cost more than the state projects, although it might not “be felt in the first year.”

“I don’t know what number they are using, so I don’t know if the impact will be felt in the first year, but it might be felt in the second and third years, when we get some cost expectations back and see a shortfall in the amount which has been allocated for Medicaid expansion,” Curry said.

Although education in Nebraska, as in most states, is primarily funded through local property taxes, lawmakers will want to avoid offending powerful special interests by cutting the state-level allocation, Curry says.

“I believe the governor said they would have to cut the budget for K–12 education to bring home the message Medicaid expansion costs money,” Curry said. “I don’t think it’s going to be K–12, because the education lobby is really strong in Nebraska, and I just don’t think they would let that happen. Even when we had the big budget shortfall, they did not cut education like they cut other areas of the budget."

“Nebraska has six to seven different funds which it uses to fund state government,” Curry said. “A very large fund is federal grants, so I could see them drawing down more federal grants to offset state appropriations. They could also move things outside the general fund into cash funds or revolving funds to free up money in the state’s general fund.”

Curry says there’s a possibility higher-education money may be targeted to help pay for the expansion. “In 2017, [most funding] was cut 2 percent across the board, but the universities only got a 1 percent cut, so I could see universities getting cut a little bit more since they were spared the last time,” Curry said.

Expects Huge Cost Overrun

Curry says estimates projecting Medicaid expansion will cost $30 million and be covered by a new internet sales tax are unrealistic.

“I think the cost is going to be closer to $90 million,” Curry said. “If they say it’s only going to cost $30 million and the Legislative Fiscal Office says it’s going to cost $30 million and they put that into our budget, then they’re not going to need to cut any money from K–12 education until next year, when there’s a massive budget shortfall because it costs $60 million more than they thought and they’re going to have to fill the hole.”

Adding Medicaid expansion to Nebraska’s already very tight budget will reduce the state’s ability to help the neediest people, Curry says.

“I think Nebraska’s Medicaid benefit is very generous in the services it provides, so in order to expand coverage to more people, they’re going to have to limit the services they currently offer in Medicaid, and, unfortunately, those who are the most vulnerable who need these programs are probably going to have to do without so the state can balance its checkbook,” Curry said.

Expansion Realities

Matthew Glans, a senior policy analyst with The Heartland Institute, which publishes Health Care News, says Medicaid expansion puts other government programs at risk and harms those most in need of assistance.

“Medicaid expansion is expensive and insures the young and healthy instead of concentrating on the disabled and elderly,” Glans said. “It’s no surprise to learn that states may have to use funding for other projects they may consider priorities to pay for expansion. Taxpayers will ultimately be footing the bill for those projects if their funding is diverted away to pay for Medicaid expansion."

“Medicaid expansion doesn’t improve the quality of health care, so states shouldn’t choose to expand a program with that kind of history and take federal funding away from other important programs like infrastructure or schools, especially when there are better free market options for improving the health insurance system, such expanding association health plans and short-term insurance plans,” Glans said.